Don't Fear the RPR

NAR’s New Tool Rolls Out Later This Year—After That, Everything Changes

(Part Two of Two)

Arizona REALTOR® Magazine - May 2010

This is the second part in a two-part story about the REALTORS® Property Resource. View part one from the April issue of Arizona REALTOR® Magazine.

REALTOR® Value

When you know a lot about a property and the neighborhood it’s in, and you know a lot about similar properties and neighborhoods, you can make a pretty good estimate about the value of that property. And the more (and more accurate) the data you have, the better that estimate will be.

RPR has a lot of data. Good data.

So meet the REALTOR® Valuation Model (RVM). It’s RPR’s direct competitor to other automated valuation models (think Zillow’s Zestimates), but, say the RPR folks, it’s a lot better.

For one, there’s more data. Most importantly, as RPR integrates with MLSs across the country, those data include real-time prices, making it a lot more up-to-date than other models.

For two, RPR has the advantage of more than a million REALTORS® and appraisers, whose input will, over time, help RPR adjust the algorithm it uses to calculate a property’s value.

If you’re an appraiser, your first reaction might be, “Yikes! That’s gonna put me out of a job!” You won’t be the first to jump to that conclusion. But then you’ll stop and consider it for a moment. You’ll realize, as Mona Steen, RPR's senior vice president for industry relations, put it, “No lender is going to make a loan on a property that someone hasn’t walked through.”

Still, some appraisers, like Mack Strickland, chair of NAR’s Appraisal Committee, are hesitant to give RPR their stamp of approval. For Strickland, the RVM is akin to a broker price opinion (BPO), and, he says, “Appraisers are concerned about BPOs. We feel that a BPO is an appraisal, and agents and brokers shouldn’t be doing that without an appraisal license.”

But it’s not just REALTORS® using the RVM as a substitute for a qualified, licensed appraiser. Strickland also worries that appraisers could abuse it by using the RVM to accept work outside their areas. “The biggest concern I have is that anyone who has a NRDS number can get hold of all this data,” he says. “If you think REALTORS® are upset about geographic incompetence now, wait ‘til this becomes available!”

But Steen points out that while the RVM is a better valuation model than most, it’s still a model and still an automated valuation model (AVM), and AVMs have been around for a while. The RVM is just a better one, and an appraiser would be foolish to rely on it for more than background.

Whether coming from RPR, Zillow or somewhere else, “all these AVMs are based on public information,” she says. “They come up with an estimate that could be terribly good or terribly bad.”

The RVM is expected to make appraisers’ jobs easier and make their appraisals even more accurate by giving them a good starting point. But, as Steen puts it, “It’s a better starting place than any other place you could go.”

(Will there be people who think the RVM is the end-all, be-all of valuations — who think they don’t need an appraiser? Of course. It can’t be helped; these are the same people who think that the “Zestimate” they got from Zillow is a realistic selling price.)

Having a more-accurate estimation of property value is a powerful — and potentially profitable — tool. That’s important; see “Making Money” below.

Of course, the RVM is, like all AVMs, an estimate. But RPR has added a crucial feature: the ability for individual users to update RVM information about a property to generate a better estimate. Because, while Steen is confident saying RVM has a great algorithm, she concedes that “it doesn’t know the basement flooded.”

That means that if you know the basement flooded, or that the property has a better view than the neighbors, or that it has more bedrooms than the database says, RVM gives you the tools to use that expertise. In other words, you can see how the RVM estimate would change if it knew what you know.

On a page that lists all the information the RVM has, you’re given the opportunity to change those assumptions or add new ones. Adjust the number of bedrooms, or the square footage, or indicate that the house has a better (or worse) view than its neighbors.

RPR will then deliver a new estimate based on what you’ve told it — and that estimate is only for you. (You’re not changing the official RVM figure, although the RVM may take your changes into account for the future.)

So if you’re working with a client and realize the RVM figure is off for whatever reason, make your changes and show your client that revised estimate. Your knowledge and expertise makes for a better starting point when you’re talking about price… at least until a human appraiser gets there.

Making Money

RPR is intended, first and foremost, to be a tool for REALTORS®, and only REALTORS® have access to it. But NAR also believes it can sell two very small pieces of information to other companies and eventually make a profit doing so: The value of a portfolio of properties (using the RVM) and whether or not individual properties are on the market (using MLS data).

The customers of the RVM are lenders — banks and other institutions that own mortgages directly or through mortgage-backed securities. They want to know, obviously, how much those properties are worth. Unlike stocks, though, there’s no NASDAQ or NYSE to check. Nor can they send appraisers out regularly to each of those hundreds or thousands of properties.

“There’s a huge need on the lending side of the marketplace to understand how much those mortgages are worth,” says Steen. Today, lenders buy those valuation figures from whomever will sell them. The result is what you might imagine: a vague estimate at best, especially because the range of values of a property can vary wildly from one automated valuation model to another.

RPR’s plan is to set the standard by leveraging a huge amount of data, including data that only REALTORS® can provide: MLS listings. (It doesn’t even have to be the listing of a particular property. Having data about nearby or similar properties that are on the market is almost as good.)

The plan is for lenders to contract with RPR, send a bulk list of the properties whose mortgages they own to the database and get a monetary figure back. The lenders won’t, Steen stresses, get the value of each individual property in their portfolios, just the total.

It’s still an estimate, of course, but it’s an estimate from what Steen and Jeff Young, RPR's senior vice president of operations, hope will be the most reliable source out there: REALTORS®.

“It’s not going to be perfect from day one,” Steen says, “but it will be better than what’s out there.” (A detailed study published in the Winter 2001 Appraisal Journal, for example, found that even in the market with its highest accuracy level, Zillow’s “Zestimates” were little or no better than homeowner estimates — and often worse.)

The other profit center for RPR will be a simple yes/no it will provide to lenders: “Is this property for sale?” Lenders want to know how many and which mortgages they own are on the market. They use that for valuation and marketing, and RPR can make the process much easier — something they’re willing to pay for.

How much? According to Fidelity's LPS Real Estate Group, having a valuation model like the RVM — one that uses the MLS data — could result in $80 million in sales for LPS. And the contract calls for any sales increase to be split 50/50 with RPR.

In short, RPR (and NAR) expects to eventually earn $40 million per year simply by selling portfolio valuations and for-sale notifications to lenders. “These are the only data points we will ever sell,” Steen said.

But two’s enough to concern some MLSs. When RPR sent out the first version of the licensing agreement it hoped they would sign, the reception was cool, to say the least.

Now Waaaaaait a Minute

On January 27, MRIS, the largest MLS in the country, announced that, for now, it was not going to participate in RPR.

In an open letter, REALTOR® Adam Cockey, chairman of the MRIS board of directors, explained that the MRIS board was concerned about two aspects of the proposed contract: how the data it provided would be used and why there was no provision for sharing potential revenues with the MLSs.

“RPR and LPS would not place limitations on the uses of the information collected and the types of products that would be developed,” Cockey pointed out, and while MRIS could simply “yank the feed and not renew the contract,” the MRIS board was not comfortable with that.

“RPR says ‘give us your data, we’ll tell you what we’re going to do with it’,” said Jonathan Hill, MRIS’s vice president of business development. “That kind of leaves the brokers out in the cold.”

He gave the example of RPR’s telling lenders whether a particular property was being sold by its owner: “That tells them there may be trouble, it certainly tells them that [the owner] is moving and it gives them a marketing opportunity. And brokers are concerned that their customers may not be aware that this information is being shared this way.”

MRIS — and, Hill said, other MLSs he’s spoken with — wants the contract to limit the use of that data. “The license agreement,” he said, “needs to have some work done on it.”

Then there’s the issue of money. If MLSs give their data to RPR, and those data increase RPR’s value, they want a cut. As Hill put it, “Brokers are concerned — ‘Why did someone else take my content and monetized it, and I didn’t get any benefit from it?’”

That doesn’t make sense to Christine Todd, CEO of the Northern Virgina Association of REALTORS®, who points out that MLS members do get a benefit: valuable information that non-REALTORS® don’t have, in an incredibly easy-to-use tool.

More importantly, she says, “MLSs are created to help brokers and agents make money, not to help the MLS itself make money.” So while the brokers Todd knows “say this looks like a phenomenal tool,” she sees the MLSs “coming up with artificial roadblocks.” And unnecessary ones.

“They should be concerned about Zillow, they should be concerned about HouseValues,” she says, “not their own family member.”

Still, NAR and RPR are sensitive to those complaints. So on February 22, it announced significant changes to the wording of the MLS contract.

Among other things, version two of the contract adds some data safeguards, so only people who should be able to see listing data can see listing data — no consumer access, for example.

The only way for someone else to get hold of the data in RPR would be to have a REALTOR® or broker give it to them. But access is tracked, and anyone trying to grab huge chunks of data (the only kind that would be useful) would be discovered quickly. And, says Steen, “If we ever catch a REALTOR® abusing the terms of use of the site, their access will be terminated and not restored.”

The new contract also allows MLSs to restrict the use of their content, and it protects MLSs and REALTORS® from ever having their own content sold back to them — or even being marketed to. (Not that every MLS will want to restrict their content. RPR is already working with some MLSs in New York that want to share their information — they plan to use RPR to facilitate data-sharing agreements with their neighbors.)

But as for the issue of profit sharing, RPR’s Steen was clear: It’s too early to discuss it. “When we become profitable, we’ll be willing to sit down with the MLSs to talk about profit sharing.”

And Todd, for one, thinks the MLSs are rushing. “To think that NAR is going to turn around and immediately give money back to the MLS,” she says, “is unrealistic.”

NAR, RPR and MRIS are continuing to talk, and although by press time there was no announcement, Hill points out that “no doesn’t mean ‘No forever.’ No means ‘No as presented.’”

RPR Madness

There are other concerns about RPR, of course — not surprising with a product this big and comprehensive.

For example, some brokers aren’t concerned so much about the MLSs getting their fair share, but about what the brokerages do — or don’t — get. After all, one points out, the MLS is the medium, but it’s the brokers providing the message. And they don’t get paid for the information they provide.

MRIS’s Hill expressed some unease about even the existence of the REALTOR® Valuation Model. “To attach the word ‘REALTOR®’ to any valuation model will not do our members any favors,” he said. “When a consumer sees that RVM value on that property, and the agent has a different value, the consumer is going to say “But this is the REALTOR® value. Why can’t you get that for my house?”

And Rob Hahn, who writes about marketing, technology and real estate — and whose consulting company has MRIS as a client — feels that RPR is a boon for smaller companies … at the expense of the larger. “The obvious impact is that the smaller, less established players gain an edge, while the larger, more established players lose competitive advantage,” he wrote.

“Large brokerages, who may have invested millions of dollars over the years into a proprietary toolset that provides their agents with data, tools, attractive reports and analytic tools will find that the little mom-n-pop down the street can now compete pretty effectively with them on the technology front. RPR is a boon to the masses, and a curse to the classes.”

Aside from the fact that Hahn seems to be arguing against the technology because it’s good, RPR’s Young points out that the argument “It will hurt the good at the expense of the mediocre” is an old one. “I heard that with broker reciprocity and IDX,” he said, but it didn’t come to pass then. “It still comes down to service level and performance.”

But Young says that Hahn’s argument is equivalent to believing that having a Blackberry makes you a great communicator. “It’s the brokers and the agents whose job it is to take the tools and differentiate themselves in the marketplace.”

And Christine Todd remembers a similar outcry when NAR announced Realtor.com.

REALTORS® were scared that once the listings went up on a national website, “buyers and sellers would never use a REALTOR® again,” she recalls. That turned out not to be the case. And, she points out, “What the consumer wants, the consumer gets. So why shouldn’t they get it from a REALTOR®?”

NAR has given some demos of RPR and its capabilities and interface, and there have been plenty of discussions on blogs and message boards. But the system is still being developed, and a perfect picture of RPR — and its implications — isn’t out there.

“For me the jury’s still out,” says Mack Strickland, but “if NAR didn’t do it, Google or Zillow or someone else would do it. And I’d much rather have it under the golden R than anyplace else.”

Ditto, says Todd. “NAR is doing what any association should do: harnessing its power to collect data very efficiently and turn that data into a valuable resource for REALTORS®. How could anyone find anything wrong with that?”

Reprinted from Commonwealth Magazine April 2010 with permission of the Virginia Association of REALTORS®. Copyright 2010. All rights reserved.